The Four Steps to the Epiphany

Summary: The four steps to the Epiphany

Epiphany = Erleuchtung

The book is divided into six chapters:

1. The path to Disaster: The Product Development Model
2. The Path to Epiphany: The Customer Development Model
3. Customer Discovery
4. Customer Validation
5. Customer Creation
6. Company Building

General Purpose of the Book

The purpose of the book is to describe a “compass” to learn how to prioritize the hundreds of tasks, projects, questions and focus areas that pop up during the foundation process of a startup company and that all appear to being absolutely vital. Those questions are answered by the analysis of processes and strategies of other startup companies that made mistakes, which shall not occur to the reader. The book covers three major topics:

1. Product Development
2. Customer Development
3. Company Building (when a startup develops into a bigger company)

The structure of the book advances according to the different phases of startup companies. Beginning with the product development and the targeting of customer groups over the alignment of product and customer development to the transition from a startup to a company with more regularized processes. While this book uses a lot of negative examples to illustrate that focusing too much on product development and too little on customer development, it conveys the importance of getting feedback from the market & customers is key to establishing a business.

The Path to Disaster: The Product Development Model

• Startups differ from established companies as they neither have an established customer base nor necessarily offer their products on existing or mainstream markets. Hence startups must not orient themselves on big companies but should rather follow a different strategic approach and be aware of the differences between big companies and startups.

• While big companies are aware of competitors, customers and markets, startups may not understand their market environment and have to identify potential customers before they can develop their product. The process of first building a customer base and then tailor a suitable product is understood as the “customer development process”. As a first company, the first online grocery business “Webvan” is mentioned. Founded in 1996, Webvan soon failed as they emphasized the product development too much while researching too little about their customers and their demands.
• The definition and written documentation of core values and mission statement are essential to not lose the guide during the development of the company, as many unforeseeable challenges and difficult questions may occur. For such cases, the mission statement does not only provide a reminder of the original targets of the company, but it also creates an authentic image and is of essential importance for employees and customers, that have to have an image of the company in mind. Thus, the mission statement should convey reasons to work for a company, goals for size, growth & profit and definitions of success (e.g. market expansion, a growing customer group etc.)

• Mistakes are inevitable. Constant customer/user feedback is the best way to avoid/correct mistakes. Customer feedback can already be helpful before the product is ready to sell. Via product testing and customer feedback, a startup company can learn about their customers and potential markets. The feedback should then be used to adopt recommendations for change in the product development process and consider lessons learned from the tests in the field. The object of tests is to gather as much information as possible, not to sell the product.

• Startups cannot afford major mistakes. Accordingly, their response time to customer feedback is vital to their survival. As startups often form new markets, their environment is ever-changing and requires a higher pace in responding to feedback. In order to reduce the response time, the hierarchies of startups require fluidity and need to be flat as necessary changes cannot only be approved from the top. → flat hierarchies to shorten organizational response to market/customer demands.

The Path to the Epiphany: The Customer Development Model

• Building and launching a great product that automatically attracts customers does rarely work. Product development is just an internal product process that needs to be synchronized with findings from external influences of customer development process. Example: “Furniture.com” first online furniture retailer. Failed because customers were not yet ready to procure furniture online. Poor/no market research did not uncover the lacking willingness of customers to procure furniture online.

• First build customer base and tailor product according to their needs. When researching the market and conducting customer development process, take mission statement, core values, market environment and nature of the product into account. Positive example: “Design Within Reach”, a designer retailer, customized every published catalog according to previously received customer feedback → customer base increased. Customers felt appreciated and valued due the startups’ attention to their remarks.

• Sell product to enthusiastic early adopters that have a pressing problem. Many startups waste a lot of money and valuable feedback as they do not focus on early adopters but rather try to build a perfect product for the mainstream market. Launching a product/service, that in its rudimentary form, solves an identified problem for early adopters will create cash flows and provide information about the use and performance “in the field”. This information helps to improve and optimize the product and the cash flows will finance those optimizations and hinder a “drying out of money.

• Don’t wait too long, get your product on the market. Otherwise other companies may outdate your product while you are still in the development phase.

Company building

• Startups cannot stay startups forever. Continuously building a customer base is a prerequisite for growth.

• Growth is achieved by changing target group over time:

1. Customer creation phase: Depending on market environment, either target early adopters to enter niche markets or broader range of customers
2. After having first customers, conduct customer analysis and evaluate potential. Subsequently either continue to pursue first customer base or shift focus (e.g. from early adopters to more mainstream customers as product gets better and more known). Before targeting mainstream customers however, a deep understanding of their demands & needs has to be generated and the product has to be refined to meet these criteria
3. After refining the product, the startup will enter the “Company building phase” that goes along with increasing sales

• Two options for targeting new customer segments:

1. Use early adopters as “cheerleaders” to promote your product via word-of-mouth by reviewing it in public (also bloggers, youtubers)
2. Utilize positioning to reach customers (“Starbucks is the No. 1 place for coffee”)

• Align media and defined messages to customers. After defining the right way to approach target customers, an appropriate channel has to be identified as the amount of advertisement customers are bombarded with is skyrocketing. Messages to customers are crucial as they are responsible for the perception of the company. Therefore, find a way to combine “unpaid messengers” (early adopters via word-of-mouth) and paid media advertisements (magazines, billboards or websites) in marketing communications strategy.

• Use market research and customer knowledge in order to identify right media to send messages to target customers. (e.g. if they read prestigious newspapers, take some money in the hand and rather have some commercials in right newspapers than more announces in cheaper but less appropriate magazines)

Application to Sponsor Mio

1. As already started, get online, attract as many “heroes” as possible and ask them about their preferences and expectations/hopes of creating a profile on SponsorMio
2. Go out & ask companies about ideas, willingness, barriers and other ways of cooperation to get customer feedback
3. Maybe approach smaller companies, with limited media presence and target group of young people/students/travelers to sponsor a hero on SponsorMio. Use number of likes, clicks, followers to attract such younger businesses
4. Write down mission statement and core values
5. Analyze previous developments with core idea & mission statement → what was the target to what has the idea developed (change of customers → blogger & instagramers instead of real travelers)
6. Set up “roadmap” → long-term targets & steps of evolution